The Family Residence/SP or CP

In a Divorce Proceedings the Residence is Mainly what Causes Confusion and Litigation. The following are bullet points to help clients understand how the residence is legally divided under California Law:

I. Home acquired before marriage—CONVERTED into joint title during marriage: Is Presumed to Be Community Property In It’s Entirety.

A. Assume yet a common fact situation: H purchases an $80,000 home before marriage, paying $20,000 down and taking a $60,000 mortgage, title in his name alone. He marries W two years later, at which time the house is worth $100,000 and the mortgage has been paid down $500; the parties immediately convert the home into joint tenancy, amending the deed accordingly.

Fam.C. § 2581 title presumption as threshold issue: Here, unlike under Moore and Marsden, H would first have to overcome the Family COde § 2581 CP/joint title presumption: i.e., even though the husband purchased the house before marriage, the general consensus is that it is deemed “acquired” during marriage within the meaning of Family Code Section § 2581 because the spouses converted it into joint tenancy property during marriage (see ¶ 8:415 ff.). [Marriage of Neal (1984) 153 CA3d 117, 123–125, 200 CR 341, 345–346 (disapproved on other grounds in Marriage of Buol (1985) 39 C3d 751, 763, 218 CR 31, 39, fn. 10); but see Marriage of Delaney (2003) 111 CA4th 991, 998, 4 CR3d 378, 383—dicta questioning whether § 2581 applies to interspousal transmutations (not an “acquisition” of property)]

Unless H can introduce evidence of a writing showing he was to maintain his separate property interest, the home is presumptively community property. The reason for which the joint tenancy conversion was made is immaterial (¶8:417). [Fam.C. § 2581; Marriage of Neal, supra]

Subject to presumption of undue influence: When the interspousal title “conversion” advantages one spouse (i.e., inadequate consideration is given), the Fam.C. § 721(b) presumption of undue influence prevails over the § 2581 presumption; SP title will be restored at the disadvantaged spouse’s behest unless the advantaged spouse carries the burden of dispelling the presumption that the transaction was tainted by undue influence (see discussion at ¶8:35.1 ff.). [Marriage of Delaney, supra, 111 CA4th at 998–1000, 4 CR3d at 383–385 (see ¶ 8:35.4)]

II. The Husband Can Get Reimbursements For all Separate Property Contributions into the Residence that can Be Traced Under Family Code Section 2640.

Tracing reimbursement if presumption not rebutted: If H cannot meet the Family Code § 2581 rebuttal burden and the entire value is thus divisible community property, H would still have a claim for reimbursement under Fam.C. § 2640 for his traceable separate property “contributions” to the acquisition of the house.

The reimbursable contribution under this fact situation would be the value of the separate property interest in the home at the time of its conversion to joint tenancy form—i.e., its fair market value (in this example, at least $100,000), discounted by any outstanding encumbrances and by any community interest acquired under Moore/Marsden (¶ 8:301) based on nongift community payments made during marriage on the mortgage prior to the conversion into joint tenancy. [See Marriage of Kahan (1985) 174 CA3d 63, 72, 219 CR 700, 707; Marriage of Neal, supra, 153 CA3d at 124, 200 CR at 346, fn. 11; see also Marriage of Rico (1992) 10 CA4th 706, 710, 12 CR2d 659, 661 (citing text)—referring to this as “the normal reimbursement situation”]

Conclusion,

For Parties who are looking to add their spouse to the home in order to refinance. You need to be careful as you are not “gifting” all of the equity and the entire house to your spouse which you would have been otherwise entitled to claim in a divorce proceeding. Have a separate written up agreement, prepared by an attorney, that clearly display your intentions with respect to the house prior to transferring title, or even after. Because, once you transfer title the only thing you can do is claim a Family Code Section 2640 reimbursement from the property which would be a down payment contribution, improvements or any other funds that were placed in the property from separate property funds.